Moving Forward, Here’s What the FTC’s Order Requires Herbalife to Do

Kevin Thompson Shares His Legal Insight To The Herbalife Settlement

Herbalife

After a two year investigation, Herbalife has agreed to pay a $200 million fine to the FTC and act in accordance with prescribed measures. With this morning’s announcement of a settlement, investors and proponents/opponents of the MLM industry alike are attempting to process what it all means for the Company’s future. Before we provide you an in-depth analysis of the stipulations found within the FTC’s Order for a Permanent Injunction and Monetary Judgment, it’s important to remember that these prescribed actions only apply to Herbalife and not multi-level marketing companies collectively. In response to a question in which she was asked what kind of implications the settlement will have on the network marketing industry , FTC Chairwoman Edith Ramirez stayed mum on its long-term implications and stated rather plainly that the FTC would soon be providing additional guidance on legitimate network marketing companies. That aside, let’s get down to business and clarify what the FTC’s order does and does not say.

THE BIGGEST TAKEAWAYS

Macro Perspective

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Historical Perspective on the Seventy Percent Rule

Is The 70% Rule a Regulation Or Just a Guideline?

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Out of all of the topics covered in MLM law, there is not a single topic more obfuscated and misinterpreted than the 70% Rule. This rule has been purposefully screwed up by MLM critics in an effort to craft a narrative that suits their agenda. Candidly, I’m shocked that neither myself nor my peers have addressed this sooner. The rule is incredibly easy to understand ONCE YOU UNDERSTAND THE HISTORY.

The Origins of the Seventy Percent Rule

The Seventy Percent Rule was one of the “Amway Safeguards” that the court highlighted in 1979 when it found that Amway was NOT a pyramid scheme. The summary of the rule: In order to qualify for downline bonuses, Distributors had to move 70% of their existing inventories to customers OR distributors. The spirit of the rule is designed to ensure that Distributors were not “garage qualifying” and sitting on inventory. The inventory had to MOVE to other people.

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What Makes a Company a MLM?

Are You Launching a Network Marketing Company or Pyramid?

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I recently fielded a phone call from a business owner who asked me the following question: Does my business model qualify as a multi-level marketing company? It’s a good question whose answer invokes a variety of possible legal implications.

THE MLM LEXICON

With no single authority providing some sort of precedential definition of “MLM,” the best way of boiling the concept down to its essential elements is through the lens of different authorities and sources.

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Required Purchases: The MLM Pay to Play Dilemma

Can a Direct Sales Company Require Reps Purchase Products For Commission Qualifications?

MLM Attorney Kevin Thompson

When I sense a gap in the industry’s understanding on an issue, I see it as an opportunity to learn more and write content that sets the record straight. I’ve been fielding a lot of questions lately on the subject of whether a company can require monthly product purchases as a condition for pay plan qualification. When I give the answer, I’m sometimes met with surprise. They’ll often say, “They’re doing it over here and over there…..are you telling me they’re a pyramid schemes!?” Here’s the truth: multilevel marketing companies cannot require their participants to buy inventory as a condition to participation. This is black letter law, meaning it’s a rule not subject to any dispute. Whether this principle comes as a surprise or makes no difference, an understanding of why it exists and where it comes from is crucial to the avoidance of regulatory trouble.

The best definition for what constitutes a pyramid scheme arises out of the 1975 FTC case, In re Koscot Interplanetary, Inc. What separates a legitimate MLM from an illegal scheme boils down to two basic elements:

(1) a participant’s payment of money in return for the right to sell a product/service; and

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MLM Attorney, Kevin Thompson, on Bloomberg TV Responding To Herbalife Questions

This article first appeared on The MLM Attorney Blog! KT_portrait-300x289

I had the privilege of being on Bloomberg for a small segment talking about Bill Ackman’s latest presentation. The 7-minute segment can be viewed above. Ackman’s presentation today, if you can spare 3+ hours, can be found here. Before summarizing his argument, it needs to be said that he heavily promoted this presentation yesterday across the news. He was like Muhammad Ali talking about the Thrilla in Manila, saying that this was “the most important presentation of his life.” He further said that this would be the “death blow” to Herbalife. He successfully spooked the market, causing it to drop 11%. Instead of “conclusively proving fraud,” which was his intent, he ignited confidence in the market due to the lack of substance, causing the stock to go up 25% in one day. I’m not making this up. Up 25% the day of the death blow. Only on Wall Street. I’ll summarize his thesis:

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How To Launch A Successful Direct Selling: Start With A Competent Direct Selling, Party Plan, Network Marketing Consultant

Launching a direct selling company is not something that can be done with an out of the box approach. Each founder or group of founders. bring to the table their own vision and mission of what they expect to accomplish. Although some may not fully understand, each company takes on a personality of its own. So what is the secret behind those handful of companies that last 5, 10, 25 or 65 years, and those which go down in flames? The consultants they hire from the very beginning!

Over the years, I have had the great privilege of meeting and working with some great network marketing consultants. Two such people are Jay Leisner and Victoria Dohr of Sylvina Consulting.

Jay Leinser JayLeisner  brings over twenty-five years of unparalleled business experience and success to the direct selling industry.

Previous to launching Sylvina Consulting in 1999, Jay worked for 13 years with a major direct selling software provider as a software developer, project leader and business analyst to provide both startups and existing companies, in the USA and abroad, with customized software solutions to meet the individual requirements of their businesses.

His in-depth experience working with major companies and new enterprises, his broad knowledge of this marketing channel and his understanding of many types of businesses, have earned Jay the respect and admiration of direct selling companies, peers, and employees alike.

Victoria Dohr Victoria Dohr had an impressive 30 year career in sales, marketing, advertising, public relations, and telecommunications.  She also had 5 years of direct selling experience as an independent Mary Kay consultant.

Victoria sold advertising to major players in the fashion world, including Givenchy and Halston. Having worked behind the camera as well as in front of as a model, Victoria understands the importance of delivering confident, concise, and connecting messages.

Direct selling is a perfect fit for Victoria.  She enjoys sharing her perspectives and suggestions with new and established companies.  Her desire to help companies overcome issues and obstacles is not just a job; it’s a passion.

One of the coolest resources provided by Sylvina is their Startup Guide. 

Sylvina Our 200+ page guide will tell you:

  • how to create a direct selling business
  • where to begin
  • what are the tasks that need to be done
  • when should you do them
  • why it’s important to have a good plan

We developed our guide in response to the hundreds of calls taken throughout the years by Sylvina Consulting asking these and other questions:

  • “How do I start a direct selling business?”
  • “What are the tasks ahead of me?”
  • “What are good products for direct selling?”
  • “How do I write a direct selling business plan?”
  • “What are my sales tax obligations?”
  • “What type of compensation plan should I use?”
  • “What are my options for initial recruiting?”
  • “What should I know about Autoship?”
  • “What do I need to know about MLM software?”
  • “Do I really need an MLM attorney?”
  • “How long will it take to launch my company?”
  • “How much will it cost?”

and, most importantly:

  • “What other questions should I be asking?”

Leisner is also co-founder, along with the MLM Attorney Kevin Thompson of the Direct Selling Edge Educational Organization. They hold the Direct Selling Edge Conference three or four times a year to educate entrepreneurs on how to successfully launch a direct selling company.

Direct Selling Edge Conference

 

Monday and Tuesday, April 28 and 29, 2014

Drury Plaza Hotel Franklin

Franklin (Nashville), Tennessee

To book your room, go to http://www.druryhotels.com/Reservations.aspx?groupno=2204451. Reservations may also be made by calling (800) 325-0720 with group number 2204451.

Our discounted room rate is $119.95 per night. Included is a hot breakfast in the morning and hot food and cold beverages at 5:30pm.

Bring your team!

Only $199 for your first ticket and $100 for each team member.


The optional Nashville At Night excursion with dinner is $50 per person.